Owners of Sooke Bay Estates battle condo developer over sale of options to purchase three septic field areas designated and maintained as parkland

IN THE SUPREME COURT OF BRITISH COLUMBIA

Citation:

The Owners, Strata Plan VIS2968 v. K.R.C. Enterprises Inc.,

 

2007 BCSC 774

Date: 20070601
Docket: 04 5633
Registry: Victoria, B.C.

Between:

The Owners, Strata Plan VIS2968

Plaintiff

And

K.R.C. Enterprises Inc.

Defendant


Before: The Honourable Justice Gerow

Reasons for Judgment

Counsel for the Plaintiff:

A.R. Tryon

Counsel for the Defendant:

M.J. Hargreaves

Dates and Place of Trial:

March 26 and 28, 2007

 

Victoria, B.C.

[1]                The Owners, Strata Plan VIS2968 (the “Owners”) are owners of bare land strata lots in a development known as Sooke Bay Estates in Sooke, B.C.  The developer of the strata plan was Blackstone Capital Corp. (“Blackstone”).  The project was developed in three phases between November 25, 1993 and March 9, 1994.  Each of the three phases contained lands designated as common properties which were to be used for septic fields.  The common properties were to be maintained by the Owners and were designated as parklands.  At the time of the development, Blackstone contemplated that sometime in the future it was likely that the municipal services would be extended to the strata lots and that there would be no further need for septic fields.  Prior to selling the lots or registering the strata plan, Blackstone filed a Disclosure Statement which indicated that the developer would be granted an option to purchase the three septic field areas in the event that the development became serviced with a public sewage system. After the strata plan was registered, and prior to any strata lots being sold, Blackstone caused contingent options to be granted for each phase which gave Blackstone the option to acquire the parklands in the event that public sewer services became available for the strata lots.  For each of the three options, Blackstone, while owner of all the strata lots, signed a special resolution granting Blackstone the contingent options.  On February 24, 2004, Blackstone notified the Owners that the contingent options were being offered for sale.  Subsequently, the contingent options were purchased by K.R.C. Enterprises Inc. (“K.R.C.”) and assigned by Blackstone to K.R.C.  Prior to the assignment, the Owners notified K.R.C. that they contested the validity of the options.  The matter proceeded by way of stated case, with the parties agreeing on both the facts and issues.

[2]                The agreed upon issues are: 

1.         Did the granting of any or all of the options constitute a violation of any duty owed by Blackstone to the Owners?

2.         If yes, are the Owners entitled to a declaration regarding the validity of the options or is the Owners’ claim restricted to damages?

3.         Was the granting of the options permitted under the Condominium Act, R.S.B.C. 1979, c. 61 and, if so,

(a)        were the contingent options prohibited by s. 73 of the Land Title Act, R.S.B.C. 1979, c. 219?

(b)        were the special resolutions passed to grant the options valid?

4.         Are the provisions of the contingent options purporting to grant Blackstone proxy rights enforceable?

5.         If the provisions regarding proxy rights are not valid can, and should they be severed and the validity of the contingent options preserved?

6.         Are the contingent options void or otherwise invalid for the reasons set out in paragraph 16 of the amended statement of claim, i.e. because:

(a)        section 80(2) of the Strata Property Act, S.B.C. 1998, c. 43 requires a ¾ vote of the Owners to dispose of common property and the Owners cannot be required to approve the transfer to give effect to the options;

(b)        any costs associated with hooking up to a public sewer system will require a ¾ vote and the Owners cannot be required to approve the expenditure; and

(c)        transferring the lands for a total consideration of $30 is contrary to the best interests of the Owners and therefore conduct prohibited by ss. 3 and 31 of the Strata Property Act?

7.         Are the contingent options invalid or otherwise unenforceable because they are not registered against title to the individual strata lots?

BACKGROUND

[3]                Forty-eight bare land strata lots constitute the Strata Corporation.  The strata plan for the development consisted of three phases, each containing sixteen strata lots.  The Strata Corporation was created by deposit of phase one of the strata plan at the Victoria Land Title Office on November 25, 1993.  Blackstone was the developer and registrant of all three phases of the strata plan. 

[4]                A separate single family residence is located on each strata lot. The common property consists of the roads which are within the boundaries of the strata plan, right of ways and parklands.  The septic fields for the residences on the strata lots are located on three of the parklands.  There are three separate sewage disposal systems, one for each phase of the development, and each servicing sixteen lots.     There is no municipal sewer service available to the residences.  The parties anticipate that service may be extended within a few years.

[5]                Four months before phase one of the strata plan was deposited in the Land Title Office, Blackstone filed a Disclosure Statement with the British Columbia Superintendent of Real Estate.  The Disclosure Statement was received by all of the owners who purchased directly from Blackstone.  Some of the owners are successors in title to the original purchasers. 

[6]                The Disclosure Statement referred to the Options under the heading “Other Encumbrances”:

The Developer will grant an Option To Purchase the Common Area septic disposal fields in each phase in favour of the Developer, which Option To Purchase will only be exercisable by the Developer in the event that the development is serviced with a Municipal or other public sewage system at the date of exercise.

[7]                The Disclosure Statement contains no other reference to, or description of, the options.

[8]                On November 24, 1993, one day before the strata plan was deposited at the Land Title Office, Blackstone granted to itself the contingent right to purchase the phase one septic field area.

[9]                Prior to, or at the same time, the option to purchase the phase one septic field area was executed, Blackstone signed a special resolution purporting to authorize the yet to be created strata corporation “to grant to Blackstone Capital Corp. a Contingent Option burdening the Common Property (Septic Field)…”.  The special resolution was completed with the strata corporation number left blank. 

[10]            On November 25, 1993, the strata plan was deposited in the Land Title office creating the Strata Corporation.  On December 14, 1993, the phase one option was registered. 

[11]            On February 19, 1994, Blackstone, acting as strata council, granted to itself contingent options to purchase the phase two and phase three septic field areas.  The phase two and phase three options were registered in the Land Title Office on March 9, 1994, the same day as the phase two and phase three strata plans were filed. 

[12]            The three septic field areas are part of the common property and shown as such on the strata plan.  They are maintained by the Owners as parklands.  Each of the three options contains identical terms except for the common property affected. 

[13]            Each option includes the following terms:

The Optionor [i.e. the Strata Corporation], and each of them, hereby irrevocably appoints the Optionee [i.e. Blackstone] as its/their attorney for the limited purpose of executing on behalf of the Optionor any and all documents, including corporate resolutions, which are reasonably required by the Optionee, the Approving Officer, or any statutory body having an interest in the Optioned Property, to give full force and effect to this Indenture.  The Owners, and each of them, hereby irrevocably give to the Optionee full proxy to vote their share or shares and exercise their vote at any meeting or on any resolution called for any purpose relating to this Indenture.

The Optionor and the Optionee (for themselves, their respective heirs, executors, administrators, successors and assigns) do hereby COVENANT AND AGREE each with the other or them that in the event the Option hereby granted shall be exercised and accepted within the time hereinbefore limited, and in the manner hereinbefore set forth, then forthwith upon such acceptance and exercise, this Indenture shall constitute a binding contract of sale and purchase between the Optioner and the Optionee (or its assignee) with respect to the Optioned Property hereinbefore described upon the following terms, namely: -

1.         The Purchase Price shall be TEN DOLLARS ($10.00) of lawful money of Canada and shall be payable by payment of the sum of $10.00 cash, being the entire balance of the purchase price on the date of completion.

2.         The Date of Adjustments shall be deemed to be the date of completion.

3.         The Date of Completion shall be the 90th day after the date of the exercise of the Option by the Optionee, on which date registration shall be completed and the balance of the purchase price then owing shall be paid.

4.         The Optionor shall deliver up vacant possession on the said Completion Date.

The parties agree that there are no representations and warranties except as expressed or referred to in this agreement.

[14]            In February 2004, Blackstone notified the Owners that the contingent options were being offered for sale.  The Owners did not purchase the options but advised Blackstone that they considered the contingent options to be void and unenforceable.  K.R.C. purchased the options.  Prior to K.R.C. purchasing the options, the Owners advised K.R.C. that they contested the validity of the options.  After the options were assigned by Blackstone to K.R.C., the Owners notified K.R.C. that they revoked the appointment of Blackstone as their attorney and revoked any proxy granted to Blackstone.

[15]            From the time the strata plan was created until Blackstone ceased to control the Strata Corporation, the standard by-laws found in Part 5 of the Condominium Act applied.

[16]            Since 1995, the contingent options have been registered against the common property folio for the Strata Corporation and a search of the common property folio since that time would disclose the registration of the contingent options.  Prior to 1995, registration of the contingent options was recorded on a separate strata plan sheet entitled “Dealings affecting the common property.”  The common property folio and the plan sheet can be searched by any interested person to determine the charges, liens, and interest affecting the common property.  The contingent options are not registered against the individual strata lots. 

[17]            It is agreed between the parties that if municipal sewer services were available, Blackstone would not have included all the septic field areas within the strata plan.  Inclusion of the septic fields in the strata plan was part of Blackstone’s costs to develop the property.  The granting of the contingent options was part of Blackstone’s business plan for the development.  One reason Blackstone chose shared sewage systems over self-contained single lot systems was the increased marketability resulting from the inclusion of the parklands within the strata plan.

ANALYSIS

 (More)